There was no escaping the coronavirus in 2020 and the pandemic will continue to be a dominant Business risks in 2021. Covid had a huge effect on the potential disruption and loss scenarios companies are facing in the wake of a pandemic.
In a recent study done by Allianz, there were 3 main risks that had the biggest impact on businesses. They are strongly interlinked, demonstrating the growing vulnerabilities of our connected world.
1)Business Interruption | 2) Pandemic Outbreak | 3) Cyber Incidents
Business Risks Insurance is coverage that replaces income lost if a business is halted due to DIRECT PHYSICAL LOSS OR DAMAGE to your property.
*Example: A fire causes a business to shut down until repairs are made. Business Income coverage provides lost income during the shutdown. With the insurance payout, owners can still pay rent, taxes, wages, etc.
With the recent pandemic, many business owners were left frustrated when their business income claims were declined. It is important to understand what triggers a claim when it comes to business income loss. The loss that triggers business interruption must be the result of physical damage to the property. In addition to COVID-19 not being a physical damage loss, most policies also contain a virus or transmittable disease exclusion.
The insurance company has no way to estimate the catastrophic potential of this pandemic situation. There was a study done on small businesses with fewer than 100 employees. If insurance paid out on all those businesses for COVID-19, the cost would be between $280 billion and $350 billion per month.
Just like natural disasters, the losses eventually have a large effect on the overall insurance market rates. Not only that but if all the insurance carriers went under and no one could purchase insurance that would have a greater effect on our economy.
Pandemic Outbreak & The Future
Following SARS, there were some markets that came out with a virus product, but it didn’t gain much traction. Many insured’s rejected coverage due to the cost or the lack of markets and strict underwriting.
Many expect there to be coverage caps in the future much like the market did with terrorism business income in the years following 9/11. The cap basically says “Ok, in the future, we will offer some coverage, but we need a cap (for example $250M), which is the most the insurance industry can absorb and everything over that the federal government has to pay.
Another option underway is more of a support role to the government. Carriers would basically take the claims, get documentation that there actually was the loss of income/profit, determine if the claims are covered or not, and then the federal government would pay the bill.
Some actions that business owners are taking to help limit their risk are: Improving business continuity management (creating systems of prevention and recovery to deal with potential threats), developing alternative or multiple suppliers, improved supplier selection, auditing, investing in digital supply chains, and purchasing cyber insurance.
Cyber Insurance covers your business in the event of a network security failure, data breach, malware infection, cyber extortion, ransomware, or email compromise. It is one of the top 3 risks in multiple countries. The acceleration towards greater digitalization and remote work has increased the IT vulnerabilities. Cyber incidents increased by 300% in April of 2020. Cybercriminals taking advantage of the pandemic increased exposure.
What does Cyber Insurance Cover?
*Network Security: First Party Claims: Legal Expenses, IT forensics, Data restoration, Negotiation of demand, Breach notifications to consumers. Third-Party Claims: Defending your organization from litigation or to cover legal expenses, fines, or penalties.
*Network Business Interruption: Lost income due to security failure or third party hack
*Media Liability: Covers lawsuits against you for acts of libel, slander, defamation, copyright infringement, etc.
In summary, it is a great idea to get with your current insurance agent to go over surfacing business risks due to the 2020 pandemic. We recommend you meet with your agent at least once a year to make sure you discuss all exposures and to confirm your policy is current. Time passes by quickly and it can be difficult to stay up to date with all the insurance trends. Meeting annually will allow your agent to fully understand your needs and expectations.